Signs of a slowdown in the labor market raised the prospect of an earlier interest rate cut by the Federal Reserve, helping stocks finish a holiday-shortened trading week with a bang.
The big gun for the market on Friday was the June jobs report, which revealed a still-strong but cooling labor market. U.S. nonfarm payrolls rose by 206,000 last month, down 1.2% from the previous month. Bureau of Labor Statistics The figure, released Friday, is basically in line with the 200,000 jobs that economists had predicted. May employment report The number of new jobs was revised down to 218,000 from the previously reported 272,000.
Importantly, the unemployment rate based on a separate survey rose to 4.1% in June from 4% the previous month, and economists expect the rate to remain stable at its lowest level in half a century.
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“Perhaps most worrying is the steadily rising unemployment rate, which rose for a third straight month to hit 4.1%, its highest level since November 2021,” wrote Jose Torres, senior economist at Interactive Brokers. “If this trend continues, it will undoubtedly bring interest rate easing to the country, and market participants have responded by raising the odds of a Fed rate cut in September.”
The June employment report is the latest in a series of data pointing to a weakening job market, which provides a case for a rate cut. Recall that market participants are eagerly awaiting the Federal Reserve’s first quarter-point rate cut that would bring interest rates down from their 23-year highs.
The Federal Open Market Committee (FOMC) only hinted at one rate cut this year at its June meeting, but a slowing labor market and easing wage pressures make it more likely that the central bank will adopt a more dovish stance in the coming months.
According to CME Group’s FedWatch tool, futures traders as of July 5 were pricing in a 73% chance that the FOMC would make its first rate cut in September, up from 58% a week earlier, while the chance of the first cut in December had fallen to 22% from 31% a week earlier.
Second quarter earnings season approaches
Next week, major airlines and two of the country’s largest banks are scheduled to release their quarterly reports, marking the unofficial start of second-quarter earnings season.
from now on Revenue Calendar The start of the week is relatively quiet but traders will get busy from Thursday onwards. Delta Airlines (DAL) will report before the market opens. Morgan Stanley analysts Ravi Shankar The analyst says Delta Air Lines is one of the “cleanest stories” among airlines right now, noting its unusually large exposure to corporate travel compared to its peers. The analyst rates DAL an overweight (equivalent to a buy) and calls it a “top pick.”
on friday, JPMorgan Chase JPM, the nation’s largest bank by assets, is scheduled to report earnings. Citigroup (C) Jefferies analyst Ken Azzedine, who has a buy rating on JPM, notes that loan growth at many banks has been sluggish due to high interest rates, which could continue to weigh on net interest income (NII) in the near term.
Analysts believe the NII’s growth potential is nearing a tipping point, but this depends largely on the timing and magnitude of the Fed’s rate-cutting cycle.
Downgrade sends NVIDIA shares plummeting
Friday was a record-breaking day for the market, led by mega-cap tech and communication services stocks, including the Magnificent Seven. But the mega-cap tech stocks that dominated the market during the bull market missed out on the fun.
meanwhile apple (AAPL), Microsoft (MSFT), alphabet (Google), Amazon (AMZN) and Meta Platform (META) All are rising strongly heading into the weekend, NVIDIA (NVDA) fell 1.9% after an analyst downgrade.
New Street Research cut Nvidia to neutral (hold) from buy, citing a “health check” for artificial intelligence stocks. Further gains for Nvidia’s shares “would only come in a bullish scenario of a materially improved outlook beyond 2025, but we are not yet confident this scenario will materialize,” analyst Pierre Ferrague wrote in a research note.
Tech stocks dominate major indexes Nasdaq Composite Index The number increased by 0.9% to 18,352. S&P 500 The index rose 0.5% to 5,567. Both indexes closed at record highs. Dow Jones Industrial Average It rose 0.2% to finish at 39,375.
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